RBI Expands Gold Reserves by 27tn in October, WGC Reveals

According to the latest World Gold Council report, dated October 2024, this month Reserve Bank of India added 27 tonnes of gold to the country’s reserves. This strategic move again brings to the fore the pro-active stance of India toward its financial interests, marking yet another important role for gold in countering economic uncertainties.

Building India’s Economic Resilience

Buying 27 tons of gold makes India’s total gold reserve about 794.64 tons. It is one of the ways through which the RBI can ensure the stabilisation of the economy amidst all these global economic disturbances happening around the world today. Again, it is not in isolation because a large number of countries around the world have increased their gold reserves as this reserve is increased to curtail the use of the U.S. dollar.
Gold has always been a safe haven for a long time and has been proven so by being a good hedge during difficult economic times. For instance, it witnessed a jump of about 25% during the world financial crisis of 2008. Thus, by inducting this, the RBI is further building up the resilience of India’s financial system against macroeconomic shocks such as geopolitical tensions, currency fluctuations, and many others.

Global Perspective: Reserve Banks and Gold Reserves

India’s gold purchase is part of the global trend where central banks are increasing their gold reserves. The World Gold Council reports that, in the third quarter of 2024, central banks purchased a record 337 tons of gold. This increase, resulting from uncertain economic conditions and inflation coupled with the need to wean from the U.S. dollar, has come at a 27% increased rate than last year’s increase. This trend tells a tale of gold being treated as a part of a central bank’s reserve policies.
China, Turkey, and Poland have been the most dominant countries in their pursuit to collect gold. These nations share a common goal: to reduce risks in their economies and reduce reliance on the U.S. dollar. India’s move puts it on the same level as those countries, making it an even better position to fortify its financial strength and make itself less vulnerable to global financial instability.

Why Gold? Strategic Significance

Of the available reserve assets, Gold’s properties are more desirable to a central bank than foreign currencies or government bonds. Whereas the former can be devalued by monetary policy, and the latter involves credit and interest rate risk, gold retains its intrinsic value during a crisis.
The following are the strategic benefits of gold for central banks:
Portfolio Diversification: Gold is poorly correlated with other assets and thus the reserve portfolio remains in a well-balanced form.
Inflation Hedge: The purchasing power is preserved by the metal over the time duration.
Crisis Insurance: At times of geopolitical uncertainty or at times of an economic slump, the commodity functions as an asset of stability and decreases the risk in finance.

Effect on India’s Economy

The RBI’s decision to buy gold is expected to bring several positive effects on India’s economy. A diversified reserve portfolio increases financial stability and boosts investor confidence. Moreover, gold reserves are a buffer during currency fluctuations, indirectly supporting the stability of the Indian rupee.
Extreme dependency on gold also poses risks. The fluctuation in the price of gold can cause variations in the value of reserves kept in a country, and unlike other reserve assets, it generates no interest or dividends. Thus, the potential profit from gold is not feasible over long-term periods.

Conclusion

Adding 27 tons of gold to India’s reserve is an important move to ensure the financial stability of the nation. This strategic move also shows the ever-increasing importance of gold in the confused climate of the contemporary economy. Having a diverse portfolio of reserves places India on a better pedestal to be faced with challenges from across the world and to conserve economic sovereignty. Going ahead experts forecast that central banks could further increase their gold holdings to face changed economic situations and world uncertainties where the RBI could also see increasing levels.

~Riya Kumari, IMS Ghaziabad